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May 8, 2000


The opinion of the court was delivered by: Shadur, Senior District Judge.


After this District Court's random assignment system had delivered to this Court's calendar the lowest numbered of what ultimately became 26 putative securities class actions brought by shareholders against Bank One Corp. ("Bank One") and a number of individual defendants, the host of those identical later-filed actions was added to the mix by appropriate reassignment orders. Among the several actions that this Court then took were these:

1. It issued its February 11, 2000*fn1 memorandum order that (a) in part notified the parties that it contemplated the effective consolidation of all such actions for pretrial purposes and for trial (see 15 U.S.C. § 78u-4 (a)(3)(B)(ii)*fn2) and also (b) notified the parties and their counsel in those underlying actions that as part of its determination of the member or members of the putative plaintiff class who is or are "most capable of adequately representing the interests of class members" (referred to here, as the statute does, as the "most adequate plaintiffs"*fn3) pursuant to Subsection (a)(3)(B)(i), this Court was contemplating the possibility of awarding the putative class' legal representation on the basis of sealed competitive bids (as it had previously done in an antitrust class action, In re Amino Acid Lysine Antitrust Litigation, 918 F. Supp. 1190 (N.D.Ill. 1996)). That latter notification was given in full awareness of the considerations that have been put into play in securities class actions by the Reform Act (of which 15 U.S.C. § 78u-4 is a part).
2. On February 18 this Court issued another order, which was embodied in its oral ruling during that date's status hearing and its memorandum order of the same date, that (a) directed the filing of a single amended complaint on or before February 25, naming as co-counsel all persons or firms who were counsel of record in the numerous underlying lawsuits, and (b) authorized the filing of sealed bids on or before March 10 by counsel seeking to be awarded legal representation of the class (to serve either as class counsel of co-class counsel, with any representation by more than one counsel to be limited by the terms of the bid as to the total fees payable to all counsel.
3. On February 25 this Court dismissed all of the underlying actions in favor of the single Consolidated Class Action Complaint (hereafter simply "Complaint") that conformed to Paragraph 2(a) of this opinion and that had been filed under Case No. 00 C 880.

When defendants then submitted (on the same March 10 due date that this Court had set for tendering the sealed bids by plaintiffs' counsel) their Joint Motion To Dismiss the Consolidated Class Action Complaint ("Motion To Dismiss"), this Court announced that it would defer any decision as to the designation of the most adequate plaintiffs and as to the award of class legal representation until the Motion To Dismiss had been ruled upon. All plaintiffs' counsel listed in the Complaint (whether or not they had submitted bids) and any other counsel who had submitted bids were authorized to respond to the Motion To Dismiss.

Then with those responses in hand, as well as a motion for leave to file an Amended Complaint that had been submitted by counsel for the "Pension Group" (a group of shareholders that had sought designation as the most adequate plaintiff but had not actually filed its own complaint), this Court ruled orally on April 18 that the Motion To Dismiss was denied and that defendants would be required to file an answer addressing the Complaint's substantive allegations. At this point, then, the issues of representation by the most adequate plaintiffs and of the designation of class counsel are ripe for decision.

Class Certification

Although this Court has not heretofore been in a position to specify that this action is indeed entitled to be maintained as a class action (the concept adverted to in Fed.R.Civ.P. ("Rule") 23(c)(1), most commonly termed "certification"), any gap in that respect has simply been occasioned by the understanding that such status is not really in serious dispute (with the possible exception hereafter specified). There is surely no question as to the satisfaction of the ingredients of, certification that are uniformly shorthanded as "numerosity" (Rule 23(a)(1)), "commonality" (Rule 23(a)(2)) and "typicality" (Rule 23(a)(3)). Nor does there appear to be any question that the requirements of Rule 23(b)(3) are satisfied here. Hence the only potential for rejecting certification would seem to be for a possible lack of adequacy of representation (Rule 23(a)(4)) — a subject that by definition could not have been addressed until the most adequate plaintiffs and the class counsel would be identified.

Accordingly this Court hereby conditionally certifies the following plaintiff class (see Complaint ¶ 37):

And the only condition that this Court imposes on such certification is that defendants are required to file in this Court's chambers on or before May 15 either (1) any objections that they may have under Rule 23(a)(4) or (2) a statement that they have no such objections.*fn4 If no defense filing were to be forthcoming either way, defendants will be treated as having consented to the class certification identified in this paragraph.

Most Adequate (Lead) Plaintiffs

As to the determination of the most adequate plaintiffs — the designation of the lead plaintiffs or group — this Court stated early on in the proceedings that it was in full agreement with the views expressed by Honorable David Hamilton in his meticulous treatment of that subject in Sakhrani v: Brightpoint, Inc., 78 F. Supp.2d 845, 849-54 (S.D.Ind. 1999). Thus, for example, the notion reflected in certain of the underlying actions that a suitable "group of persons" for Subsection (a)(3)(B)(iii)(I) purposes can comprise individual small-quantity-purchaser shareholders who fill page after page of a complaint's listing of class members and their Bank One stock purchases is wholly unpersuasive (see Sakhrani, 78 F. Supp.2d at 853). Indeed, any choice that was based on the number of shares held by such an assemblage of small holders would really subvert the purposes of the Reform Act by maximizing the prospect that the lawsuit would truly be run by the lawyers and not by the client class members (none of whom might have a sufficient amount at stake to justify the necessary investment of time and effort to exercise meaningful control of the litigation).

This Court has examined each of the submissions seeking lead plaintiff status. It finds, based on the statute and on the considerations identified in Sakhrani, that the shareholders identified as the "Pension Group" (now represented by the law firms of Schoengold & Sporn, P.C. and Quinlan & Crisham, Ltd. (for convenience, collectively "Schoengold Firm")) best fit the statutory considerations for presumptive purposes under Subsection (a)(3)(B)(iii)(I). That Pension Group comprises six employee benefit funds whose aggregate purchases during the Class Period came to 77,200 shares (2,000 of those shares were later sold). One of the funds had the largest volume of purchases of any individual purchaser listed in any of the underlying actions or in any of the lead plaintiff submissions — 23,600 shares, including the same 2,060 shares that were later sold. That volume was not only substantially larger than the volume of transactions engaged in by any other Pension Group member (the next largest was something less than 2/3 of that 23,600 share figure) but, significantly, was larger by a much wider margin than the volume of shares bought by any other purchaser listed in any of the other underlying actions, except for the, hedge fund purchaser discussed in the next paragraph.

Although the members of the Pension Group are thus entitled to presumptive status under Subsection (a)(3)(B) as the most adequate plaintiffs, a simple example — though framed for illustrative purposes to present a substantial contrast — will demonstratee why that rebuttable presumption does not necessarily control. Suppose for instance a plaintiff in such a presumptive status has agreed that its own lawyers, if acting as class counsel, are to receive one-third of any class recovery. Suppose further that another highly reputable law firm that has appeared of record for another putative plaintiff or plaintiffs, having demonstrated excellent credentials in earlier securities class action litigation and being clearly capable of handling the complexities of the current lawsuit, is willing to handle the case for half of that percentage fee — or to provide even a greater contrast, is willing to work for that lesser percentage and also to impose a cap on the firm's total fee payment. In that circumstance the presumptive lead plaintiff could certainly bind itself contractually to pay one-third of its share of the class recovery to its own lawyer, but any court would be remiss if it were to foist that one-third contingency arrangement on all of the other class members who had not themselves chosen that law firm to be their advocate.

To this Court that would signal the adoption of one of two alternatives. It should be remembered that although Subsection (a)(3)(B)(v) provides that the most adequate plaintiffs may "select and retain counsel to represent the class," that opportunity is expressly made "subject to the approval of the court." In this Court's view, if the presumptive lead plaintiffs were to insist on their class counsel handling the action on the hypothesized materially less favorable contractual basis, that insistence would effectively rebut the presumption that the putative class representatives, despite the amounts that they have at stake personally, were indeed the "most adequate plaintiffs" — that is, the class members "most capable of adequately representing the interests of class members" (Subsection (a)(3)(B)(i)). If on the other hand the presumptive class representative were willing to be represented by the most favorable qualified bidder among the lawyers submitting bids, with that bidder either supplanting the presumptive lead plaintiff's original choice of counsel or working together with that original counsel (but with the total lawyers' fees to be circumscribed by the low bidder's proposal), the presumption would clearly remain unrebutted and the presumptive most adequate plaintiffs would properly be appointed as lead plaintiffs.

Designation of Class Counsel

Use of the Bidding Process

With that understanding, this opinion approaches the analysis of the nine previously sealed bids that it has received from counsel seeking to represent the class. Although the Reform Act has introduced into the analytical matrix the refinement discussed in the preceding section, the same considerations that led this Court to employ the sealed bidding process as the basis for awarding a class' legal representation in the Lysine litigation (see 918 F. Supp. at 1192-97) call for the same result here. In terms of the maximum benefit to the class — unquestionably the preeminent consideration for any court called upon to act as the effective "surrogate client" in the choice-of-counsel decision — that procedure is superior to any alternatives that the caselaw or other authorities have entertained.*fn5 Indeed, the reasons expressed for that conclusion in Lysine seem to this Court to be further reinforced by the recent thoughtful discussion in Goldberger v. Integrated Resources, Inc., 209 F.3d 43 (2d Cir. 2000), which in the course of holding that either the lodestar approach or percentage-of-the-recovery method may properly be used to calculate fees in common fund cases, nonetheless identified the deficiencies of each of those methods in failing to replicate the free market for legal services (see, e.g., id. at 51):

We agree that many, class actions serve a useful purpose, that lawyers who successfully prosecute them deserve reasonable compensation, and that market rates, where available, are the ideal proxy for their compensation. The problem is that we cannot know precisely what fees common fund plaintiffs in an efficient market for legal services would agree to, given an understanding of the particular case and the ability to engage in collective arm's-length negotiation with counsel.

As this Court and other proponents of the sealed bidding process have emphasized, if that process evokes a significant number of bids from well-qualified law firms or law firm combinations it is best calculated to provide precisely the efficient market information that serves as the "ideal proxy" for the one-to-one lawyer-client agreement in conventional litigation.

As in Lysine, 918 F. Supp. at 1197-1201, this opinion will follow an arbitrary alphabetical order in describing the proposals of the nine bidders. It should be mentioned at the outset that in an effort to maximize the potential for ultimate benefit to the class members, this Court (again as in Lysine) did not set its own structural standards for the bids. In that respect, any bidding constraints that this Court (not having more than threshold knowledge of the litigation and its prospects) might have imposed from the outside in the form of mandated structural limitations would necessarily have generated corresponding limitations on the exercise of imagination by bidding counsel in devising proposals that they thought would provide the maximum benefit to the class, while at the same time providing the successful lawyers with adequate compensation. That will become more evident when the wide-ranging proposals are revealed in the ensuing discussion. At the same time, the type of variation that the absence of such constraints has produced among the several proposals will necessitate some later assumptions by this Court about the potential class recovery in the process of comparing bids; There too this opinion will explain any assumptions so made. Now to the bids themselves.

Analysis of the Competing Bids

Berger & Montague, P.C. and Keller Rohrback L.L.P. (for convenience, collectively "Berger Firm") propose to charge 20% of the first $5 million recovered, plus 15% of the next $10 million and 10% of the next $19 million, with their fees capped at $3.5 million if more than $25 million were to be recovered before fact discovery is closed. Any recovery in excess of $25 million after the close of discovery would be compensated at a 15% rate, with successive caps to be applicable depending on the stage that the litigation will have reached at the time of final recovery. There is no need to detail the bid further, because at every level of recovery for the plaintiff class that bid would cost the class more in lawyers' fees than the bid from Wechsler Harwood Halebian & Feffer LLP ("Wechsler Firm").*fn6

Cohen, Milstein, Hausfeld & Toll, P.L.L.C. ("Cohen Firm") would charge 15% of the first $50 million recovered, 12.5% of the next $50 million, 7.5% of the next $50 million and 5% thereafter. That bid not only failed to include any cap on fees (as was included in the Wechsler Firm bid among others), but the Cohen Firm's crossover point with the Wechsler Firm bid occurs at the $8.33 million class recovery level.*fn7

Krislov & Associates, Ltd. ("Krislov Firm") has submitted a bid in tabular form that provides for varying percentages of fee payments at different levels of recovery at differing stages of the litigation ("document stage," "deposition stage," "trial" and "appeal"). At its bid's most favorable level (the document stage), Krislov Firm would charge 20% of the first $10 million recovered, 15% of the next $10 million, 10% of the next $5 million and 2.5% for any recovery in excess of $30 million, but with a $5 million cap in any event. As with the Berger Firm bid, the Krislov Firm bid is less favorable than the Wechsler Firm bid at every level of potential recovery.

Lowey Dannenberg Bemporad & Selinger, P.C. ("Lowey Firm") also submitted a bid in tabular form. Because the first litigation stage identified in that bid had covered the period from initial pleading through a motion to dismiss, and because this Court's April 18 denial of defendants' Rule 12(b)(6) motion has brought this action past that point, the next identified stage ("after motion to dismiss through adjudication of summary judgment") will be looked at here (all later stages actually increase the stated percentages). In those terms Lowey Firm would charge 15% of the first $20 million recovered, 12.5% of the next $30 million and declining percentages for any greater recovery. Because the Lowey Firm bid set no cap on fees, while the Wechsler Firm bid did so, it is unnecessary to set out further stages of the Lowey Firm proposal. Instead all that need be said for later comparison purposes is that the crossover point here (as with the Cohen Firm bid) is at the $8.33 million mark.

Schoengold Firm's bid (it will be recalled that the two law firms encompassed within that label are those that represent the Pension Group, the presumptive most adequate plaintiffs) have also submitted a bid in tabular form, with the first column referring to the now-mooted "pleading to motion to dismiss" stage. Any comparative analysis relating to the Schoengold Firm bid is rendered more difficult by the fact that it proposes very small percentages for the period "through document discovery," while increasing those percentages dramatically at the next phase (described as "deposition discovery through summary judgment motion"). In the first discovery stage Schoengold Firm would charge 4.25% of the first $100 million recovered and diminishing percentages thereafter, while if the case were not disposed of until the next phase (when deposition discovery had begun) the fee charged would be 10% of the first $100 million and lesser percentages thereafter. In terms of the later-discussed $2.75 million cap on the Wechsler Firm fees, the two crossover points with the Wechsler Firm bid would be $64.7 million during the first discovery phase or $27.5 million during the second discovery phase.

Spector Firm has tendered a somewhat unusual bell curve proposal, divided (unlike Gaul) into two parts — one a pretrial fee, the other a fee applicable once trial starts. Only the first stage, involving lower percentages, will be set out here.*fn8 At that stage counsel would charge 5% of the first $5 million recovered, 10% of the next $5 million, 15% of the next $5 million, 20% of the next $10 million, then 15% of the next $10 million (the amount between $25 million and $35 million in total recovery), 10% of the next $15 million and 5% of any recovery in excess of $50 million. No cap is placed on the Spector Firm fee. Again there are two crossover points with the Wechsler Firm bid, one at about $24.3 million before trial and the other at $17 million after trial begins.

As for Wechsler Firm itself, its proposal is to charge 17% of the first $5 million recovered, 12% of the next $10 million and 7% of the next $10 million, with no fee charged for any amount recovered in excess of $25 million (thus setting a cap of $2.75 million on the total fees). Wechsler Firm has also added a respectful request for this Court's consideration of a possible bonus fee if more than $25 million were recovered — a notion drawn from this Court's statement in Lysine, 918 F. Supp. at 1199 that (to discourage any possible temptation for counsel to settle too early and for an inadequate amount in light of the self-imposed cap on fees) it would consider that possibility of granting an additional fee award so long as the fee award would still "leave the class meaningfully better off financially than under any of the other original bids" (id.)

Next, Weiss & Yourman ("Weiss Firm") initially got off to an impermissible start, not only by submitting four alternative fee proposals that approached the structuring of the fee award from as many different directions, but also by then stating:

The Firm expresses no preference for any of these four alternatives and the alternatives do not appear in any particular order. The Firm makes these alternative proposals to allow The Court to choose the recovery theory which The Court finds most appropriate. Further, the Firm is open and willing to negotiation of these fee structures or to alternative fee structures.*fn9

After this Court summarily rejected that approach (or more accurately, those approaches), Weiss Firm tendered a revised proposal containing a single bid that called for a fee of 12% of the first $20 million recovered and 17% of the next $19 million, with a cap of $5.63 million. That superseding bid has a $20 million crossover point with the Wechsler Firm bid.

Finally, Wolf Haldenstein Adler Freeman & Herz ("Wolf Firm") submitted a bid calling for a fee of 20% of the first $5 million recovered, 15% of the next $10 million and 10% of the next $15 million, with no fees to be charged for any recovery in excess of $30 million (thus setting a $4 million cap on fees). As with two of the other bids, that would cost the plaintiff class more than the Wechsler Firm bid at every level of possible recovery.

Selection of the Successful Bidder

Because of the existence and the differing amounts of several crossover points of other bids in comparison with the Wechsler Firm bid, it becomes necessary (as stated earlier) to make some assumptions about the prospects of recovery for the class. Needless to say, that poses real problems of predictability. No one is provided a crystal ball for that purpose, and even if one were available there could be no assurance that it was unclouded. There are however two factors with which the analysis can fairly begin:

1. As stated earlier, the Complaint has survived defendants' Motion To Dismiss. In simple terms, the plaintiff class has stated a viable claim if it can deliver as has been advertised in the Complaint's allegations.
2. Although there have been varying estimates of the potential class recovery if plaintiffs were totally successful in this lawsuit (an assumption of such total success is the starting point for the well-known Lloyd's of London approach to evaluating litigation*fn10), the best-informed number — articulated and explained by counsel during the March 15 status hearing — appears to be in the $4.6 to $4.8 billion range.

In those terms all of the various crossover points of other bids in relation to the Wechsler Firm bid drop out of significance at very low levels of probability of success — even the highest crossover figure of nearly $65 million under one of the alternatives represented by the Schoengold Firm proposal amounts to evaluating the plaintiff class' chance of prevailing at less than 1.5%.*fn11 Moreover, even in that respect it will be recalled that the Schoengold Firm's initial low percentages of recovery apply only if the case is settled before depositions begin, at which stage the crossover point drops to $27.5 million.

It is of course worth reemphasizing that what has been said here is not at all a prediction that the plaintiff class will necessarily recover any particular amount, either by being successful at trial or by defendants coughing up that much in settlement — nor of course is this a prediction that the class will prevail at all. Instead, with assumptions being essential to the process, what is set out here surely appears reasonable in relation to defendants' multi-billion dollar exposure.

In summary, then, the Wechsler Firm is entitled to be designated as class counsel — if of course, it qualifies as a responsible bidder in terms of its credentials and experience (see Lysine, 918 F. Supp. at 1200-01). To that end this Court has reviewed that firm's curriculum vitae with care, as it has indeed done with the similar resumes of all of the bidding firms, and it is well satisfied on that score. Because both the Wechsler Firm's fee proposal and its firm resume provide the requisite highly meaningful and persuasive input in all of the relevant areas, and because there is really no need for this opinion to elaborate on what has been said there,*fn12 photocopies of both are attached to this opinion.

Finally, it has earlier been recognized that the results announced here pose a possible degree of tension because of the surface divergence between (1) designating the Pension Group as presumptive lead plaintiffs (remember that the Pension Group has entered the proceedings with two other law firms acting as its counsel) and (2) designating the Wechsler Firm as the successful bidder for the class counsel position. It should be said parenthetically that there is certainly no question that the Schoengold Firm personnel would also have qualified as responsible bidders if they had been successful in submitting the low bid (because there is no need to burden the environment by reproducing in published form the detailed statements of the unsuccessful bidders background experience and of the biographical material about the lawyers in those firms, the curriculum vitae of the two law firms representing the Pension Group will simply be attached to the file original of this opinion but will not be included in the copy submitted for publication).

But that is not really the point. What is relevant is that with the Wechsler Firm having shown itself to be a highly responsible and well-qualified law firm that is prepared to handle this litigation on the basis that promises to produce the optimum results for a successful plaintiff class, the Pension Group cannot convert its presumptive lead plaintiff status into a final designation unless it were to confirm its willingness to accept the Wechsler Firm as class counsel on the basis of its bid.

It should however be made clear that the just-stated requirement does not compel the Pension Group's total abandonment of its originally-selected counsel — counsel in whom it obviously has confidence. Because the successful low bid really defines the total amount of attorneys' fees that the plaintiff class members will bear out of any recovery obtained from defendants, and because those fees will not be a function of how many or which lawyers perform the legal services, for the class, this Court sees no problem whatever if the Pension Group were to elect (for example) to work with both the Wechsler Firm and the Schoengold Firm as co-counsel on a basis mutually acceptable to both firms, rather than the Pension Group being compelled to dissociate itself entirely from its originally-chosen counsel. Indeed, any such combined legal forces would represent a modest variant on the most frequently encountered array of lead counsel (often a team effort), liaison counsel and so on in this class of litigation.

If that co-counsel arrangement were to be chosen, of course, it must be understood that the Wechsler Firm would have the lead in allocating the lawyers' respective responsibilities and assignments — so that its successful bid could not be subverted by its being relegated to a secondary role in the lawsuit (and hence in its level of compensation).*fn13 This Court will simply await the decision of the Pension Group before this Court can make the final designation of lead plaintiff, with the expectation that word from the Pension Group on that score will come swiftly.


Except for the hereby-confirmed designation of the Wechsler Firm as counsel for the plaintiff class on the terms stated in that firm's successful bid, the other two issues dealt with in this opinion — class certification and designation of the most adequate plaintiffs to represent the class — now remain conditional upon the terms set out in this opinion. As soon as those conditions are addressed by the appropriate parties (respectively by defendants and by the Pension Group), this Court will enter an appropriate further order.


So far as this Court is aware, the late great District Judge Hubert Will (to whose place on this District Court bench this Court has the honor to have succeeded when Judge Will took senior status) originated the "Lloyd's of London" term to describe the most productive vehicle for settling both simple and complex litigation. And if Judge Will was not in fact responsible for coining the term, he was assuredly the most active advocate of that approach, embodying it in his extensive training of fledgling judges around the country over the years.

As might be guessed, the approach derives its name from the proposition that a hypothetical insurer that would be called upon to insure a litigation defendant against an adverse verdict in the lawsuit against that defendant would charge a premium that (disregarding loading costs and the insurer's expected profit, both of which it, is fair to ignore for purposes of the hypothesis that the approach is intended to implement) would discount the plaintiff's maximum potential recovery by that plaintiff's risk of losing the case. So for example, if a plaintiff could fairly be viewed as having a 60% likelihood of winning an action in which total success would bring it a $1 million verdict against its defendant, the insurance company's premium for indemnifying that defendant against losing the lawsuit would be $600,000.

To test that premise in the context of an insurer playing the classic insurance role of spreading risks, suppose that the same insurer were to cover ten such lawsuits having those identical characteristics. It would then have charged the ten defendants $6 million in total premiums ($600,000 each). In turn, as a matter of simple probabilities, six of the ten plaintiffs would be expected to recover $1 million each, so that the insurer would also have to pay out $6 million to indemnify the defendants that had been found liable (again remember that the loading costs and insurer profits are being ignored because not relevant to the hypothetical analysis at work here).

Based on that line of analysis, the most appropriate ex ante settlement figure for both plaintiff and defendant in that hypothetical scenario would be that same $600,000 figure. In that respect, among its other virtues (in addition to replacing an amorphous kind of "What's this lawsuit worth?" mental exercise with something more systematic), the Lloyd's of London approach to settlement has the advantage that knowledgeable and experienced lawyers on both sides of a litigation, when asked what the plaintiff is likely to recover if it is entirely successful, will almost always come up with numbers that are quite close to each other. Material divergence most often comes when the opposing counsel are asked the other related question of evaluating their chances of winning or losing the lawsuit. This Court's experience over the years in settling cases has been that the separation of the analysis into those two components makes it much easier to bridge the gap between plaintiffs' counsel and defense counsel by pointing out the comparative strengths and weaknesses of their respective positions (most often by this Court using a shuttle system of separate meetings, having obtained the consent of counsel to that procedure).

Although the issue that is under consideration in this opinion is of course not the possible settlement of this litigation, the present need to look at the potential "value" of the lawsuit to the plaintiff class (so as to make an appropriate comparative evaluation of the bids for legal representation) implicates the "same ...

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